Ruby company raises $3.5 from Benchmark

marcf takes a look at a recent VC deal and makes a couple comments on both services as a business model and Open Source.

b/ FALSE: the future of the software industry (as a whole) is services. I always enjoy it when in debate people mention the case of VMWare to evangelical OSS zealots. Here is a company that is creating vasts amount of technological innovation and money with a classic licensing model of software. When asked why they didn’t go OSS, the CEO responded “why would I do that?” It is embarrassing for the zealots that in this day and age one of the most successful companies is a proprietary software model. What? my ideology is not perfect? the good old model is still kicking arse? by orders of magnitude in terms of technology and, it goes without saying, financial value creation? I enjoy the squirming. The problem with the generalization above is that it assumes that proprietary license models are dying. That is just false, period. That ship is still sailing. Oracle, Microsoft, IBM, SAP are all growing healthily and running the money presses. The proprietary model is alive and kicking. The existence of OSS models DO NOT negate the proprietary models. GET OVER IT, both models will co-exist and thrive sometimes at the expense of each other, sometimes independently of each other. It is not a zero-sum game, there is value being created in both.

d/ In fact, witness the RUSH of OSS companies to emulate the proprietary licensing models to monetize their bases. The VC’s may have invested in service based companies but they are all becoming product license companies. It is not that they know something we don’t, au contraire, they are rediscovering what we all know: that giving away your core competency is a tough way of making money and nothing beats the good old proprietary licensing model. JBoss, MySQL have followed the example of RedHat with the “RHEL/FEDORA” split. AND THAT IS A GOOD THING, don’t get me wrong. That model is a proprietary distribution of OSS codebases. That is the engine that ignited RedHat’s revenue. The proprietary licensing model is still top dog and the OSS guys are falling all over themselves to emulate it. BTW, on this topic, I find that Savio Rodrigues, the “community blogger” from IBM is a more enlightened read. Maybe because he is from IBM and they literally wrote the book over the past 50 years? Going back to software as a driver for services and hardware? no problem it is called Global Services. Milking software licenses for all it is worth? no problem it is called WebSphere. Giving it all away? huh… no thank you, no!

e/ I don’t read this particular announcement as an announcement in a services model: these guys do run-time, and if they do run-time they will gravitate towards licensing models as ways to supplement revenue… why? just watch!

Marc is a smart guy and it’s always good to get as many different viewpoints as possible on a subject. I think it’s clear that Open Source creates better software. Period. But when it comes to business models, things are not nearly so cut and dry. Sure, many Open Source companies are doing fantastic. However, VMWare is just one example of a proprietary company that is also doing very very well. Commercial Open Source is still in its infancy. We still have a lot to learn. That’s actually one of the things I really enjoy about it. We have a chance to flip an entire industry on its head, while creating a lot of value (both financial and non-financial) at the same time. We can do good while doing well. Don’t get me wrong, I don’t think proprietary is going away any time soon. That doesn’t mean I think the future doesn’t hold great things for Open Source. It does.